Sunday, 17 March 2013

Expropriated! - Part 1

The Government in Cyprus, with the full backing of the EU and other supra-state bodies like the IMF, has decided to expropriate 10% of the savings of ordinary people, in order to prop up the banksCyprus Bank Levy.

As with most expropriations, its not big capitalists who are being expropriated, but ordinary workers, and the middle class. The big capitalists have the majority of their money where it cannot be touched so easily. Its held in bonds and shares that can be sold electronically in a fraction of a second, and moved somewhere safe, if the capitalists get a sniff of any threat to it. As with the expropriations carried out in Britain in the centuries prior to the industrial revolution, it was not the big landowners who were expropriated, but the small peasants and artisans. The same thing happened after the French Revolution as Marx describes in “The Eighteenth Brumaire of Louis Bonaparte”, and when various state capitalist regimes have expropriated property, as was done, for example, with the Cardenas regime in Mexico, with Nasser's regime in Egypt, and indeed as happened with the nationalisations carried out by the 1945 Labour Government, the capitalists that owned these businesses are usually more than adequately compensated.

There are very good economic, social and political reasons why that is the case. In general, expropriation by the state is a very bad measure to take, certainly on a large scale. It is almost always followed by severe economic dislocation, and panic. That can be seen over the last few years in the Eurozone, and this latest measure could have dramatic unforeseen and unwanted consequences next week across Europe.

Concern about what kinds of similar arbitrary measures might be undertaken in Greece, for example, led many people to withdraw their money from Greek banks. That was driven not just by a fear of what might happen to those banks, but what might happen if Greece left the Euro. In turn that caused a run on Greek banks, placing them in a more difficult situation, that increased the need for a bail-out. It meant Greek businesses, already worried about the economic situation, had even less reason to invest, which meant that economic growth was reduced further, throwing even more people out of work, and worsening the economic situation. Big Greek Capitalists were able to simply sell their shares and bonds, and move their money into German, or US shares and bonds, and take their cash to use to buy expensive houses in London and New York, and moor their expensive yachts in Poole harbour, where apparently now you can't even find an available space.

Similar concerns led people to start withdrawing their money en masse from Spanish, and Portuguese banks, causing similar problems there, before Mario Draghi stepped in to offer to print money to prop them up. Already, we have seen people queuing up in Cyprus at ATM's to get their money out of their accounts. A run on Cypriot banks is the last thing they need at a time when they were having to be bailed out anyway! But, of course, it is not the rich, who are queuing up at ATM's, the rich will have already moved their money to safety, and in any case, most of their wealth is not held in cash to begin with.

What is worse, the Cypriot Government, has not even passed the law to legalise this robbery yet, and yet Cypriot banks have frozen ordinary people's bank accounts, and even set aside amounts equal to the amount of the levy, ready to be handed to the government, even if people do close their accounts! But, that is not likely to save them. If I had money in a Cypriot bank, I would still be closing the account, because if they can steal money from that account once, they can do it again.  But, that applies to all European banks, now, given that this has been backed by the EU and IMF.  If money can be simply stolen from accounts in this way, it means the so called Bank Deposit Guarantee is worthless, because its clear that if things get tough, Governments will simply renege on it, so no bank deposit is now safe. 

When money was being withdrawn from Greek banks, under similar conditions, the ordinary Greeks who did not have their wealth in bonds, and shares, and foreign property, and yachts, instead began to do what ordinary people around the globe have done throughout history, and in many places continue to do. They lost their faith in fiat money, in money backed by Governments, and instead returned to real money – to gold. Sales of gold, and gold items soared in Greece.

But, for ordinary people as opposed to Capitalists even that is not necessarily a means of escape. After WWII, the main capitalist powers recognised the hegemony of the United States. At Bretton Woods, they established a new global capitalist framework, more compatible with the new global capitalist economy. In the 1930's, countries that for more than a century had operated under the Gold Standard, which fixed the value of their currency to the price of gold, were forced to abandon it, in order to devalue their currencies. Under Bretton Woods, the opposite was effectively established. Rather than fixing currencies to the price of gold, the price of gold was fixed against the dollar, at $30 an ounce. Then all other currencies were fixed to the dollar at this rate. This meant that the official price of gold remained at $30 an ounce, no matter how many dollars the US printed to finance its war in Vietnam, or its spending at home.

Eventually, France decided it had enough of subsidising US spending by this means, and Charles De Gaulle demanded what they were nominally entitled to. He demanded that the US pay France what it owed not in dollars, but in gold, and demanded that France be able to exchange its dollars for gold at the official price of $30 an ounce. Of course, the real price of gold was way more than $30, because the US had been printing large amounts of money, and thereby depreciating its value. Richard Nixon responded in 1971, by closing the gold window, in other words, he reneged on the pledge that every dollar was exchangeable for gold.

But, more than that, worried at the potential of a collapse of the global monetary system, which looked likely in the 1970's, the US also made it illegal for ordinary citizens to hold gold. You could be sent to gaol just for being in possession of gold, just as if it was heroin. That was because the state needed a means of expropriating wealth from ordinary citizens, where they were holding gold, that became much more difficult.

Its perhaps interesting that in the last few months, Germany and other countries have been withdrawing their gold, held on reserve in the US. Its likely they know something the rest of us are not yet being told. In addition, both China and Russia have started building up their own gold reserves at a much faster rate. Given the extent to which every country in the world is now in a race to depreciate its own paper currency, by printing huge amounts of it, its no wonder that those who are able to, have started to increase their holdings of gold.

But, that in itself is bad for general economic health. Money used to buy gold, creates no new wealth whatsoever, other than to a small extent in terms of stimulating new gold production. It is money that otherwise could have been used to build factories, buy machines, raw materials, and to set people to work. The fact that it has gone into such unproductive uses instead, is itself a function of the general amount of fear and uncertainty created in Europe and the US, largely as a result of political decisions. Where governments engage in these kinds of arbitrary measures it only exacerbates that fear and uncertainty.

Nor has the British Government helped by its own arbitrary response. They have said they will compensate British troops, and government employees in Cyprus for the money taken out of their accounts. But, that is a totally arbitrary decision. The British State is supposed on paper to protect all of its citizens, not just some, though, of course, Marxists know that is never true anyway. But, this is blatant arbitrariness. Why is it only compensating those British citizens? What about the thousands of British workers who have retired to Cyprus, in order to spend the last few years of their life in the sun? Why is the British Government not compensating them? When Iceland failed to compensate British savers when its banks collapsed, at least Gordon Brown agreed to compensate all British savers, as they were protected in Britain.

The potential next week is that people with money in banks across Europe, particularly those in places like Ireland, Portugal, Spain and Italy, will see this theft, and decide to get their money out while they can. A single action in one of the smallest countries in the EU, could be the spark that creates the economic crisis that either collapses the whole project, or else forces European politicians to take the necessary measures to prevent it.

Forward To Part 2

No comments: